SGD Thoughts Before the MAS Policy Decision - Nomura
Research Team at Nomura, suggests that the Monetary Authority of
Singapore (MAS) is due to release its monetary policy statement on 14
April1, and they expect (we assign a 70% probability) it to leave its
policy stance unchanged.
Key Quotes
“Prior
to the February MAS policy review, we assigned a 60% probability to an
unchanged policy stance. In our risk scenario (30% probability), the MAS
announces some form of easing, while we currently see almost no
potential for tightening.
We derive our view from our Singapore
economists’ forecasts for 2016 GDP growth (1.8%) and core inflation
(0.7%), which remain within MAS forecast ranges of 1-3% for GDP growth
and 0.5-1.5% for core inflation. Indeed, our conversations with market
participants as well as published surveys on analyst expectations for
MAS policy show that the risk of easing has fallen due to improving
economic conditions in China and broader global markets.
With
reduced market expectations of policy easing, we believe short SGD
positions (especially versus USD) have been pared back. As such, we see
potential for an asymmetric reaction to the upcoming policy
announcement, where an unchanged policy would elicit little to no rally
in SGD but policy easing would likely prompt a significant (immediate)
depreciation of SGD.
We estimate a re-centering of the S$NEER
lower by around 1.5% could lead to a 1.6% rise in USD/SGD2 to 1.3650,
while the new weak end of the band (assuming a 1.5% re-centering lower)
would be at 1.3920. A reduction of the slope would have a less
significant depreciation impact on SGD. That said, a policy easing
scenario is unlikely, in our view, but given this asymmetric reaction
function, we prefer to trade S$NEER from the short side. We acknowledge
that improving market conditions reduce the likelihood of S$NEER trading
down into the weak end of the policy band, but considering our
medium-term concerns over China and Nomura’s view that US Fed will still
hike in June, we also believe S$NEER is unlikely to trade at the
extreme strong side of the policy band.”
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